WESTLAKE, Texas, March 01, 2021 (GLOBE NEWSWIRE) — Core-Mark Holding Company, Inc. (NASDAQ: CORE), one of the largest marketers of fresh, food and broad-line supply solutions to the convenience retail industry in North America, announced financial results for the fourth quarter and year ended December 31, 2020.
“2020 truly demonstrated the Company’s resilience as we delivered record levels of sales and earnings by taking decisive actions to manage costs while continuing to execute on our strategic priorities. Our success this year wouldn’t have been attainable without the incredible commitment from our Core-Mark family, our customers and vendors,” said Scott E. McPherson, President and Chief Executive Officer. “Our fourth quarter and full year outperformance demonstrates our momentum heading into 2021 as reflected by our guidance and outlook on capital allocation.”
Mr. McPherson continued, “As we enter 2021 with a strong balance sheet and a growing business, our board has carefully mapped out our three-year capital allocation priorities. First, we will continue to reinvest in our business through a disciplined approach to maintenance and growth capital. We will return value to our shareholders through a three-year shareholder return plan focused on more aggressive share buy-backs and continued growth in our dividend. Within our balanced approach to capital allocation, we have been careful to leave sufficient availability to pursue meaningful acquisition opportunities while remaining within our target leverage threshold. To summarize, I am confident in the momentum of the Company and the steps we are taking to enhance value for our shareholders.”
____________________
(1) See the reconciliation of Adjusted EBITDA (Non-GAAP) to Net Income (U.S. GAAP) in the tables below. See the reconciliation of Diluted EPS excluding LIFO (Non-GAAP) to Diluted Earnings Per Share (U.S. GAAP) in “Supplemental Schedule for Items Impacting Diluted EPS.”
Fourth Quarter Results
Net sales increased 2.3% to $4.25 billion for the fourth quarter of 2020 compared to the same period in 2019. Sales of both cigarettes and non-cigarette products in the fourth quarter of 2020 continued to be impacted by changes in consumer buying habits as a result of the COVID-19 pandemic. Cigarette sales increased 4.6% driven by manufacturers’ price increases and cigarette carton sales that outperformed historical trends, increasing 0.3% for the fourth quarter. Non-cigarette sales decreased 1.8% for the quarter, with the largest declines coming from the food, health, beauty & general (“HB&G”) and candy categories. Sales of other tobacco products (“OTP”) continued their strong growth increasing 9.2% for the fourth quarter. Non-cigarette sales decreased to 33.3% of total net sales for the fourth quarter of 2020 compared to 34.7% of total net sales in the fourth quarter of 2019.
Gross profit in the fourth quarter of 2020 decreased 3.8%, or $8.7 million, to $221.8 million from $230.5 million for the same period in 2019, as a result of the year-over-year shortfalls in non-cigarette sales, an increase in LIFO expense and lower inventory holding gains. Remaining gross profit, a non-GAAP financial measure, decreased 1.6% to $221.6 million from $225.2 million.
Gross profit margin for the fourth quarter was 5.22% of total net sales compared to 5.55% for the same period in 2019. The decline in the gross profit margin was due primarily to the shift in sales mix towards cigarettes, which provide lower margins, lower inventory holding gains and higher LIFO expense. Remaining gross profit margin, a non-GAAP financial measure, was 5.21% in the fourth quarter, compared to 5.42% for the same period in 2019. The change in sales mix between cigarettes and non-cigarettes contributed approximately 70% of the decline in remaining gross profit margin.
The following table reconciles remaining gross profit to gross profit, its most directly comparable financial measure under U.S. GAAP:
| RECONCILIATION OF REMAINING GROSS PROFIT (NON-GAAP) TO GROSS PROFIT (U.S. GAAP) | |||||||||||||||||||||
| (Unaudited and $ in millions) | |||||||||||||||||||||
| For the Three Months Ended December 31, |
|||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||
| Amounts | % of Net Sales | Amounts | % of Net Sales | % Change | |||||||||||||||||
| Gross profit | $ | 221.8 | 5.22 | % | $ | 230.5 | 5.55 | % | (3.8 | ) | % | ||||||||||
| Cigarette inventory holding gains | (9.4 | ) | (0.22 | ) | % | (10.1 | ) | (0.24 | ) | % | |||||||||||
| Candy inventory holding gains | — | — | % | (1.1 | ) | (0.03 | ) | % | |||||||||||||
| LIFO expense | 9.2 | 0.21 | % | 5.9 | 0.14 | % | |||||||||||||||
| Remaining gross profit | $ | 221.6 | 5.21 | % | $ | 225.2 | 5.42 | % | (1.6 | ) | % | ||||||||||
The Company’s operating expenses decreased 4.1% to $197.1 million from $205.6 million for the same period in 2019. The decrease in operating expenses was due primarily to increased productivity and cost savings initiatives implemented mainly in response to the COVID-19 pandemic, partially offset by higher employee bonus and incentive costs. Operating expenses as a percentage of remaining gross profit decreased to 88.9% compared to 91.3% for the fourth quarter of 2019.
Net income increased 17.3% to $19.0 million during the fourth quarter of 2020 compared to $16.2 million for the same period in 2019. Adjusted EBITDA, a non-GAAP financial measure, increased 14.1% to $55.1 million in the fourth quarter of 2020 compared to $48.3 million in the fourth quarter of 2019.
The following table reconciles Adjusted EBITDA to net income, its most directly comparable financial measure under U.S. GAAP:
| RECONCILIATION OF ADJUSTED EBITDA (NON-GAAP) TO NET INCOME (U.S. GAAP) | ||||||||||
| (Unaudited and $ in millions) | ||||||||||
| For the Three Months Ended December 31, |
||||||||||
| 2020 | 2019 | % Change | ||||||||
| Net income | $ | 19.0 | $ | 16.2 | 17.3 | % | ||||
| Interest expense, net(1) | 2.1 | 3.6 | ||||||||
| Provision for income taxes | 3.4 | 4.6 | ||||||||
| Depreciation & amortization | 17.7 | 15.1 | ||||||||
| LIFO expense | 9.2 | 5.9 | ||||||||
| Stock-based compensation expense | 3.5 | 2.4 | ||||||||
| Foreign currency transaction losses, net | 0.2 | 0.5 | ||||||||
| Adjusted EBITDA | $ | 55.1 | $ | 48.3 | 14.1 | % | ||||
| Note (1): Interest expense, net, is reported net of interest income. | ||||||||||
Diluted earnings per-share (EPS) was $0.42 for the fourth quarter of 2020 compared to $0.35 for the fourth quarter of 2019. Diluted EPS excluding the impact of LIFO, a non-GAAP financial measure, was $0.57 in the fourth quarter compared to $0.45 for the fourth quarter of 2019. See the attached “Supplemental Schedule for Items Impacting Diluted EPS” following the financial schedules for a reconciliation of Diluted EPS excluding LIFO expense to Diluted EPS.
2020 Full Year Results
Net sales increased 1.7% to $17.0 billion for 2020 compared to $16.7 billion for 2019 driven primarily by strong cigarette sales growth, partially offset by a decrease in non-cigarette sales. Sales of cigarettes and non-cigarette products for the year were impacted by changes in consumer buying habits as a result of the COVID-19 pandemic. Cigarette sales increased 3.8% driven primarily by a 3.6% increase in the average sales price per carton due to cigarette manufacturers’ price increases and a 0.3% increase in carton sales. Non-cigarette sales decreased 2.3% driven primarily by a decrease in sales to existing customers and a net decrease in the number of stores serviced during the year, mainly attributable to the impacts of the COVID-19 pandemic on our non-convenience customer segment. The largest sales declines were in the food, HB&G, and candy categories, partially offset by growth in OTP sales to existing customers. Non-cigarette sales decreased to 33.3% of total net sales compared to 34.7% for the same period in 2019.
Gross profit in 2020 decreased 3.9%, or $35.9 million to $888.3 million from $924.2 million in 2019, driven primarily by the overall shift in sales mix to cigarettes, which have lower margins than non-cigarettes, and higher LIFO expense, partially offset by $1.9 million of incremental inventory holding gains. Remaining gross profit, a non-GAAP financial measure, decreased 3.8% to $887.2 million from $921.9 million.
Gross profit margin decreased 30 basis points to 5.24% of total net sales compared to 5.54% in 2019, driven primarily by the shift in sales mix to cigarette products and a decline in non-cigarette margins. Non-cigarette margins declined due primarily to a sales mix shift toward lower margin items within the non-cigarette category and a decline in margin rate, most notably in alternative nicotine products within the HB&G category.
The following table reconciles remaining gross profit to gross profit, its most directly comparable financial measure under U.S. GAAP:
| RECONCILIATION OF REMAINING GROSS PROFIT (NON-GAAP) TO GROSS PROFIT (U.S. GAAP) | |||||||||||||||||||||
| (Unaudited and $ in millions) | |||||||||||||||||||||
| For the Twelve Months Ended December 31, |
|||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||
| Amounts | % of Net Sales | Amounts | % of Net Sales | % Change | |||||||||||||||||
| Gross profit | $ | 888.3 | 5.24 | % | $ | 924.2 | 5.54 | % | (3.9 | ) | % | ||||||||||
| Cigarette inventory holding gains | (31.8 | ) | (0.19 | ) | % | (23.0 | ) | (0.14 | ) | % | |||||||||||
| Candy inventory holding gains | — | — | % | (6.9 | ) | (0.04 | ) | % | |||||||||||||
| LIFO expense | 30.7 | 0.18 | % | 27.6 | 0.17 | % | |||||||||||||||
| Remaining gross profit | $ | 887.2 | 5.23 | % | $ | 921.9 | 5.53 | % | (3.8 | ) | % | ||||||||||
The Company’s operating expenses decreased 4.6% to $793.6 million compared to $831.6 million the prior year. The decrease was driven primarily by increased productivity and cost savings initiatives implemented mainly in response to the COVID-19 pandemic. Operating expenses as a percentage of remaining gross profit decreased to 89.4% compared to 90.2% in 2019 due primarily to operating expense reductions that more than offset the decline in remaining gross profit.
Net income increased 9.5% to $63.2 million in 2020 compared to $57.7 million for 2019. Adjusted EBITDA, a non-GAAP financial measure, increased 6.0% to $202.2 million in 2020 compared to $190.7 million last year.
The following table reconciles Adjusted EBITDA to net income, its most directly comparable financial measure under U.S. GAAP:
| RECONCILIATION OF ADJUSTED EBITDA (NON-GAAP) TO NET INCOME (U.S. GAAP) | |||||||||||
| (Unaudited and $ in millions) | |||||||||||
| For the Twelve Months Ended December 31, |
|||||||||||
| 2020 | 2019 | % Change | |||||||||
| Net income | $ | 63.2 | $ | 57.7 | 9.5 | % | |||||
| Interest expense, net(1) | 10.5 | 14.4 | |||||||||
| Provision for income taxes | 20.1 | 19.7 | |||||||||
| Depreciation & amortization | 66.6 | 60.9 | |||||||||
| LIFO expense | 30.7 | 27.6 | |||||||||
| Stock-based compensation expense | 10.2 | 9.6 | |||||||||
| Foreign currency transaction losses, net | 0.9 | 0.8 | |||||||||
| Adjusted EBITDA | $ | 202.2 | $ | 190.7 | 6.0 | % | |||||
| Note (1): Interest expense, net, is reported net of interest income. | |||||||||||
Diluted EPS was $1.39 for 2020 compared to $1.25 in 2019. Diluted EPS excluding the impact of LIFO, a Non-GAAP financial measure, was $1.89 for 2020 and $1.69 for 2019. See the attached “Supplemental Schedule for Items Impacting Diluted EPS” following the financial schedules for a reconciliation of Diluted EPS excluding LIFO expense to Diluted EPS.
Balance Sheet and Liquidity
The outstanding balance on the revolving credit facility (“Credit Facility”) was $258.0 million compared to $324.8 million at the end of 2019. Average borrowings during the year were $259.5 million compared to $303.2 million in 2019. The amount available to draw on the Credit Facility as of December 31, 2020 was $402.4 million. Free cash flow for 2020 was $117.1 million, which was used primarily to pay down the Credit Facility, fund dividend payments of $22.3 million and repurchases of common stock of $10.4 million.
Dividend
Core-Mark also announced today that its Board of Directors has declared a cash dividend of $0.13 per common share. The dividend is payable on March 26, 2021 to stockholders of record as of the close of business on March 15, 2021.
Shareholder Return Plan
Core-Mark’s Board of Directors approved a new three-year, $375 million shareholder return plan supporting increased share buy-backs and growth in our dividend. This new plan replaces the previous $60 million share repurchase program.
2021 Full Year Guidance
The Company expects 2021 net sales to be between $17.2 billion and $17.5 billion. Adjusted EBITDA is expected to be between $208 million and $218 million. The 2021 Adjusted EBITDA guidance assumes our operating expense run-rate will benefit from cost savings initiatives and operational efficiency gains realized in 2020, partially offset by the return of certain costs including 401(k) matching, travel and meetings expense and health and welfare expenses.
This guidance assumes $28 million in cigarette inventory holding gains and does not include any other significant holding gains. Cigarette inventory holding gains of $31.8 million in 2020 exceeded our 2020 guidance of $26 to $27 million due largely to an unprecedented fourth manufacturer price increase by Reynolds American Inc. that is not anticipated to repeat itself in 2021.
Diluted EPS for the full year is expected to be between $1.39 and $1.54. Diluted EPS, excluding LIFO expense, is expected to be between $1.90 and $2.06. Key assumptions in the guidance include $32.0 million of LIFO expense, a 26.5% tax rate and 45.4 million fully diluted shares outstanding. The Company’s guidance assumes no new acquisitions or large customer market share gains. Capital expenditures for 2021 are expected to be approximately $45 million, which will be utilized primarily for maintenance and technology initiatives as well as upgrades to certain distribution facilities and the relocation of one distribution facility. The Company expects to generate free cash flow in 2021 of $80 to $100 million.
Capital Allocation Strategy
The Company remains committed to using its strong balance sheet to drive growth organically and through acquisitions while returning capital to shareholders through share repurchases and dividends. Core-Mark’s three-year capital allocation strategy is as follows:
- Reinvestment in the Business: Core-Mark will maintain a disciplined approach to maintenance and growth capital in support of its strategic priorities which is expected to be in the range of $30 to $50 million annually.
- Return of Capital to Shareholders: The Company expects to continue to return value to shareholders through a more aggressive three-year, $375 million shareholder return plan focused on increases in our share buy-backs and growth in our dividend.
- Pursue Strategic Acquisitions: The Company has sufficient availability and a strong balance sheet to capitalize on meaningful acquisition opportunities while executing on the targeted return to shareholders. The Company targets maintaining a financial leverage ratio of 2.5x or below, subject to a temporary increase of up to 3.5x in support of acquisitions.
Core-Mark
Core-Mark is one of the largest marketers of fresh, food and broad-line supply solutions to the convenience retail industry in North America. Founded in 1888, Core-Mark offers a full range of products, marketing programs and technology solutions to approximately 40,000 customer locations in the U.S. and Canada through 32 distribution centers (excluding two distribution facilities the Company operates as a third-party logistics provider). Core-Mark services traditional convenience retailers, drug stores, box or supercenter stores, grocery stores, liquor stores and other specialty and small format stores that carry convenience products. For more information, please visit www.core-mark.com.
